20 September 2007

The music industry and its blunders

In this blog post I shall be looking into the problems that the music industry is currently experiencing and explain why I think that with their current attitude towards the issues that the situation is only going to get worse (for them and for the consumer).

Firstly we must deal with the concept of physical property. I'm not going to fully define what the term means but I will make a few observations that we need to understand before I go on.

1) When you take something away from someone they no longer possess it themselves. If I steal your bike you no longer have it.

2) If I alter something of yours then when you come to use it is changed. If I hit your bike with a hammer then when you come to use it tomorrow it is damaged.

3) It takes a considerable amount of labour to make an identical copy of something of yours and depending on the object may not even be possible.

It is very important to realise that none of these observations apply to intellectual property. In fact so fundamental are these three points to our understanding of property that the term intellectual property is verging on a misnomer. It is also key to realise that it is the advent of the Internet that has made these differences so crucial.

When I sell you a piece of physical property then part of the price takes into account my storage costs, my distribution costs, my manufacturing costs and my loss of the piece of property. With mp3s these three costs are becoming less and less relevant as the infrastructure of the Internet grows and grows. Essentially the only costs left are advertising (which are more of an investment really) and production. As production is a capital expenditure this should mean that the price of music falls to essentially zero.

There are caveats here. We can expect the more music an individual buys the cheaper the cost per song to become. We can rely on the government to cream off a large proportion of the value of music as tax (particularly as music is a luxury and when luxuries become too cheap the economy slows down). Never the less we should still expect the cost per song to become negligible as the Internet allows us to download more tracks quicker.

Essentially there are two reasons this hasn't happened yet. Firstly the music companies don't have the right business model to make money from a large number of very cheap sales (changing the model would be a big pain for them). Secondly the music companies enjoy monopoly rights over the music that is sold. This prevents the sale of music approaching its true market value (the value it would fetch at auction) and prevents start up companies from providing music to consumers in the way that makes most economic sense.

Many consumers, despite not being experts in economics, get the idea that they are being sold short. This is very much the case. As such consumers don't respect copyright law and any law is hard to enforce without the support of the people.

So let us look at the measures available to the music companies and see where these will fail:

A) They can try to use cryptography to prevent a piece of music being copied.

Whatever technique that is tried will be thwarted by the following trick. You plug the line out from you computer directly back into the line in and record the song again. Its that simple! This hasn't yet become necessary because various other mechanisms are still possible and are quicker. But the best (for the companies) digital rights management can do is force you to take this step.

B) They can embed watermarks into your tracks so they can tell if it was you who started sharing the music on peer to peer networks.

This technique will fall foul of data privacy laws currently but it is theoretically possible to watermark them in a way that only the police could decode (requires strong cryptography). This will slow but not stop the leakage of music from the CDs to the peer to peer networks. In the end you only need one person to steal a CD and copy it for it to be accessible to everyone. Right now though the technology isn't there to perform proper watermarks.

My prediction for what will happen is as follows: The music companies will try every method under the sun to lock their songs so that they can't be copied. The hackers will cut through each new layer of protection until the consumers get tired of the difficulties involved. The music companies will start using watermarks. The hackers will find ways of removing the watermarks. The music industry will find watermarks that cannot be removed and the peer to peer networks will reorganise to compensate for this. The music companies will still be in the same position that they are now.

Only then do I think will the politicians intervene and introduce a form of public stock market for music (and maybe other intellectual property). At this point I expect people to begin to install music meters (similar to water, gas and electricity meters) to bill them for their music usage. Such meters would need strong privacy provisions but this is acheivable using modern cryptography. Note that such billing would certainly not be a simple per song matter but more likely would be very much cheaper (per song played) for those listening to a lot of music. Watermarks and digital locks would cease to be necessary and I imagine they will disappear. Slowly consumers will realise how much fairer the new system is and it will become possible once again to enforce the new reformed copyright laws. Enforcement would be a matter of checking up on those without meters and ensuring meters are not tampered with (somewhat like utilities and somewhat like TV licences).

NB: The last paragraph here has been modified in response to comments. There will be further posts on this topic.

Comments

Your three starting observations are right to the point. I often have to explain essentially the same points again and again.

(a) What do you mean by a
"public stock market" for music?

The only kind of system I can think of that would work and would not create scarcity where there is none (which the current system does create) would be one in which listeners would pool to support musicians from whom they want new music. Do you have an implementation of something similar in mind?

Firstly (b): When luxuries are cheap people do not need to work nearly as hard to attain their expectations in terms of material happyness. This leads to a depression in the hours people are prepared to work. Also of course the more luxury goods an economy produces the less capital is plowed back into the economy in investment.

Of course this attitude to taxation is a good thing as it is preferable for the government to get tax from luxuries rather than necessities.

Now (a): If you were selling a fixed number of identical items you would probably use a multi-unit English ascending auction (known sometimes as a Dutch auction). My proposed system would be to perform multiple Dutch auctions simultaneously each one assuming a different number of items to be sold (say one for 1,000 one for 10,000 and one for 100,000). The auction that results in the highest total payout would become binding and the others would be ignored.

Several important details:

1) Companies should not be allowed to bid for rights on their own copyrighted songs.

2) The items sold should be one time play rights to a track. Otherwise speculation over the future value of a track becomes impossible.

3) Auctions shouldn't be automatic but should be triggered by a certain level of interest in them. Those participating in an auction should pay the cost of setting it up and should decide what the upper bound for sales is.

The main benefit from such a system would be the liberalising of trade in copyright. It is thus analagous to a stock market.

This is still only an outline of the system I have in mind (and its consequences). Expect a post on this in the future.

Not the way I would normally approach the issue at all. But I begrudingly see reason to your approach of putting watermarks. I wonder what will follow from this implementation. I suspect, as you do, that the organisation of peer to peer downloading will change.

Destre:

Throughout history, the issue of proper music ownership has been a percieved threat. With the following technological innovations have necessarily come threats of piracy:

i. Printing press (and manuscript paper)

ii. The invention of music playing and recording (post-Edison) - although this threat was regarding the 'authenticity' or 'aura' (cf. Walter Benjamin) of music; it was a threat to live performances.

iii. The innovation of cassettes and piracy/bootlegging (which encouraged the flourishing of musical styles such as Punk and Thrash Metal [bands like Metallica - who ironically are against mp3 downloading - which I was going to write a post about])

On a side note; Michael tells me for your readers to consult "Bootlegging: Romanticism And Copyright In The Music Industry", by Dr. Lee Marshall; who was a tutor of his, for an ideological account of the status of copyright (sinistre and myself's favoured approach).

Sinestre: I'm not advocating water marks (although I would prefer them to locked down music). I think they will become unnecessary after a proper public market in music is established. I'll edit the post to make that clear. I do think that the use of copyrights is a phase which the music industry will pass through on its way to a more sensible final system.

There is scarcity there. It is the scarcity of musical talent and lives devoted to music. I think that my auction system properly takes this into account.

Your system sadly would not work because people are selfish and wouldn't want to be amongst the few who pay'd for the music.

re copy protection: The point is that copy-protection mechanisms are only hard to enfore because they are propping up a system that is ripping customers off. What I'm advocating wouldn't prevent you from copying and sharing as much music as you want. It just sits there in the background measuring your music usage in a fair manner (price scales logarithmically with usage).

I think going into the question in any more detail would require a blog post or two. So lets leave any further discussion until I've rigorously defined my proposed system along with its expected consequences.

We've recently introduced mp3 watermarking into our digital promo service at FATdrop. The purpose of it was, as you mentioned above, to identify the original downloader of the track in the case of a track found shared illegally. We are against the idea of using restrictive technology like DRM which attempts to prevent copying of a file and we certainly don't want to get into a battle of seeing how well we can hide a watermark, and seeing how long it takes people to find out how to remove it. In our case, it's not about that. It's about finding the people who carelessly share music and in necessary, taking away their right to receive pre-release promos.